Preventative steps key to protecting personal financial information

By now, most Americans have received consumer advisories or encountered news stories about the recent data breach at Equifax, one of three nationwide consumer credit bureaus.

The breach was unnerving, individually and collectively, and it may directly lead to some victims experiencing real challenges and hardship. People are right to feel violated and to be concerned. 

{mosads}Still, despite widespread media coverage and several hearings on Capitol Hill, clear and actionable information on the full range of available consumer protections has been muddled by consumer confusion about the breach. The credit bureaus’ response measures as well as reflexive attempts to prescribe policy solutions may have further confused matters.

In particular, some security experts, public officials and consumer advocates have wrestled publically over the necessity of freezing accounts, which may restrict consumers’ access to credit and other financial services, and taking other preventive measures and safeguards.

Unfortunately, the most frequently proffered advice to consumers in the wake of the Equifax data breach — a credit file freeze — is very likely to result in unnecessary headaches and costs. There is a weak link between data breaches and identity theft.

Past evidence suggests less than 1 percent of those whose data was stolen from Equifax will experience any form of identity fraud or theft.

Approaches to maintaining personal health and financial health are similar. A combination of ongoing monitoring, education and preventative measures go a long way to ensuring well-being.

In medicine, for example, there are antibiotics known as “last-line-of-defense” drugs. Such an antibiotic is prescribed by a doctor after all other treatments have been tried and failed. The reason is that bacteria develop a resistance to antibiotics when overused or misused. So patients are initially given first-line-of-defense treatments. 

This same approach should be standard protocol following a breach involving sensitive financial data. There are several measures available to consumers that are convenient and cost-effective.

First, people should take reasonable steps to protect themselves. Changing passwords, securing free credit monitoring from Equifax and requesting and reviewing free credit reports from www.annualcreditreport.com are simple measures that can effectively help minimize the risk of harm. 

There are also online services that allow consumers to review some of their credit reports and receive notification of changes at no cost. Credit reports should be monitored for “hard” inquires not initiated by the consumer or new or existing accounts that do not belong to the consumer (this will help identify new account fraud).

Consumers should review their credit and debit card account statements periodically for all open accounts (this will help identify existing account fraud.)

Second, and beyond monitoring steps, consumers can proactively defend their identity with an initial fraud alert. For free, a consumer can place the initial fraud alert by phone, in writing or online. If a fraud alert is on a consumer’s credit file, lenders are required to contact the individual or take reasonable steps to verify the identity of the applicant before extending a new line of credit or increasing a line of credit.

An initial fraud alert lasts for 90 days, allows a consumer to request a free credit report from each bureau and can be renewed indefinitely. The consumer may request an additional free report with each renewal. A fraud alert requested at one bureau is shared with the other two bureaus. 

Third, those who have already become identity theft victims can choose an extended fraud alert. A victim can place a free extended alert on their consumer file for seven years by presenting a copy of a law enforcement report or an FTC identity theft report.

If an extended alert is on a victim’s credit file, lenders are required to contact the person to confirm their identity before extending a new line of credit, increasing a line of credit or issuing a new or replacement card. The victim can remove the extended alert at any time. An extended alert requested at one bureau is shared with the other two bureaus. 

More extreme precautionary steps include a credit file lock or credit file freeze. These will halt access to a person’s credit report. But, since credit reports are used for a variety of personal and business transactions, including opening new accounts, some identity verification, verification of credit histories, renter background checks, employment checks and insurance, this can be disruptive for economically active individuals. These will also need to be initiated at each credit bureau and often entail costs.   

A credit file lock can be activated via a smartphone app, instantaneously, whereas freezes and unfreezes can take time (perhaps more than a day), require a PIN and incur a fee for each freeze and unfreeze.

Trans Union currently offers a free credit lock app; Experian offers it for free to subscribers of other services; and Equifax has said it will make one available for free by January. 

Credit data is the lifeblood of the consumer lending system. Without it, lenders cannot accurately assess credit risk and creditworthiness. Reliable access to credit file data permits consumers to ensure accuracy and accountability; they can review their data in real time from their computers or mobile phones, easily dispute inaccurate items and help identify theft and fraud. 

Simple, reasoned and personalized approaches to maintaining credit data can support consumers’ security and other interests and enable continued engagement in our dynamic marketplace.

Michael Turner, Ph.D., is the CEO of the Policy and Economic Research Council (PERC), a think tank with the goal of poverty alleviation through credit access enabled by information solutions.